A new in-depth story about the ongoing legal fight between Apple and Qualcomm has been posted online today by Bloomberg Businessweek, going behind the scenes of the accusations and rebuttals made by the two tech companies. The fight centers upon the "Qualcomm tax," or the amount of money that Qualcomm charges smartphone makers for the internal components of a device that allows it to connect to a cellular signal, also known as the smartphone's modem.

According to court documents seen by Bloomberg Businessweek, the true origin of the feud is described as starting two summers ago at the Allen & Co. conference in Sun Valley, Idaho. There, Apple CEO Tim Cook and Samsung Vice Chairman Jay Y. Lee are believed to have "shared a quiet word," where Cook told Lee to "pressure" South Korean antitrust regulators into intensifying a Qualcomm investigation that had been open for about a year at the time.

Apple wanted to get itself in front of investigators and spur more questions about the Qualcomm tax, which it could do because it was in an agreement with the modem supplier. That deal had lowered the tax from $30 to about $10 per iPhone, with Apple promising not to challenge any of Qualcomm's patents. However, it meant that Apple could truthfully answer any question in an investigation about the supplier that was already under way -- which Qualcomm claims was exactly Apple's intent at the Idaho conference.

Qualcomm claims that at the event—almost certainly the Allen & Co. conference in Sun Valley, which both Cook and Lee attended—the Apple executive urged Samsung to pressure South Korean antitrust regulators to intensify an investigation into Qualcomm that had been open since 2014. “Get aggressive,” the Apple executive said, according to Qualcomm's filing, adding that this would be the “best chance” to get Qualcomm to lower its prices.

Apple says nothing improper happened. “I don’t know what conversation they are talking about,” says Bruce Sewell, the company’s general counsel, in an interview at headquarters in Cupertino, Calif. “For Apple to have said to Samsung, ‘You guys are in Korea and you should be watching this case carefully,’ doesn’t seem to me to be anything beyond simply the kind of conversation two CEOs might have.”

The story then details a few other parts of Qualcomm's history, including its massive "Patent Wall" that greets visitors to its headquarters, displaying patents for Qualcomm's CDMA specification and others that the company claims to be for the first smartphone and app store. "I can't think of a keystroke that you can do on a phone that probably doesn't touch a Qualcomm invention," said CEO Steve Mollenkopf.

Apple was reliant on Qualcomm for this reason for many years, as it produced the highest quality modems in the supply chain and forced the Cupertino company to deal with the Qualcomm tax. That changed in 2015 when Intel began producing modems that would arrive in the iPhone 7. According to Apple general counsel Bruce Sewell, "What prompted us to bring the case now as opposed to five years ago is simple, it's the availability of a second source."

This introduction of a quality second source in the modem supply chain was met with another point by Apple: a smartphone modem is simply one of many components that make up an iPhone — and of "no special significance" as modern consumers rely less on the actual cellular features of the device. These two points encouraged Apple's decision to fight back against Qualcomm, ultimately leading to Apple's lawsuit earlier this year, a Qualcomm countersuit soon after, and more companies joining Apple in its fight.

“Cellular connectivity is important,” he says, “but it’s not as important as it used to be.” On another table behind Sewell, an Apple representative has laid out two versions of the iPhone 7: One model, which has 128 gigabytes of memory was sold by Apple for $750. The other, which has 256 GB, sold for $100 more. How is it fair, Apple asks, for Qualcomm to charge as much as $5 more for the technology in the more expensive phone, given that the two devices are otherwise identical?

In July, Qualcomm claimed that Apple infringed on six of its new patents concerning battery life and graphics processing in smartphones, and in August the U.S. International Trade Commission opened an investigation into Apple's alleged infringement with a decision date aimed around the time of the September 2018 iPhone launch. The patent infringement accusation is said to be designed to disrupt Apple's supply chain and "push the company to negotiate," with Qualcomm CEO Mollenkopf stating that all of the legal back-and-forth won't last forever, expecting Apple to settle soon.

That won't happen according to Sewell: "There's no way that this case settles, absent a complete reinvention of the licensing model that Qualcomm has adapted in the industry."

“The other, which has 256 GB, sold for $100 more. How is it fair, Apple asks, for Qualcomm to charge as much as $5 more for the technology in the more expensive phone, given that the two devices are otherwise identical?”

This is a joke right? Apple trying to argue about fairness by giving an example in which Apple itself is unfair to customers by charging exorbitant $100 fee to ugrade the SSD when in reality it’s far cheaper? Almost 10 years of unfair 16gb iPhones. And no, there is no R&D costs for Apple to buy more SSD from its supliers.

Unbelievable.

When Apple charges you for more storage, they are charging you for the extra value the device has by having more storage. You can say they charge too much, but that's their prerogative.

Qualcomm isn't providing any extra value when Apple makes a phone with more storage. They're selling Apple the same exact modem.

“The other, which has 256 GB, sold for $100 more. How is it fair, Apple asks, for Qualcomm to charge as much as $5 more for the technology in the more expensive phone, given that the two devices are otherwise identical?”

This is a joke right? Apple trying to argue about fairness by giving an example in which Apple itself is unfair to customers by charging exorbitant $100 fee to ugrade the SSD when in reality it’s far cheaper? Almost 10 years of unfair 16gb iPhones. And no, there is no R&D costs for Apple to buy more SSD from its supliers.

Apple wanted to get itself in front of investigators and spur more questions about the Qualcomm tax,

But the Apple tax on consumers is okay, Tim?

Apple was reliant on Qualcomm for this reason for many years, as it produced the highest quality modems in the supply chain and forced the Cupertino company to deal with the Qualcomm tax.

I thought Apple was all about high prices in return for quality. Moreover, Apple wanted Samsung to pay a lot of money for a few questionable patents, but aren't willing to pay Qualcomm for using hundreds of patents that Qualcomm spent billions developing. What's good for the goose is good for the gander.

In a similar way, cellular patents have been charged by phone price for decades. In this way, higher priced (and profit) phones subsidize phones which have as little as $2 profit. Those phones could not possibly pay a $10 royalty fee, but phones making hundreds of dollars in profit certainly can.

Moreover, just as with apps, the higher priced/profit phones would not have had much of a market without all the lower priced phones, as it is the latter which led to the construction of the global cellular network. Lower priced apps/phones constantly prime the pump for the higher profit makers to make billions.

It's interesting when an Apple patent is disputed, Apple will start a thermonuclear war between companies ...but when it comes to respecting other company's patents ... oh how they love to play the victim.

When Apple charges you for more storage, they are charging you for the extra value the device has by having more storage. You can say they charge too much, but that's their prerogative.

Qualcomm isn't providing any extra value when Apple makes a phone with more storage. They're selling Apple the same exact modem.

But Qualcomm wants the profits. Qualcomm for example would charge $100 per chip if the iPhone was $10,000. This is basic economics. This is American capitalism. Apple doesn't get to decide fair price- the market does. If Apple thinks the price is unfair, then don't buy it and let's see what happens. This is how our markets work. The government needs to stay out.

I see your point, but Apple is complaining about a part they, in many cases, MUST buy, and that the pricing/licensing arrangement is unfair. Wake me up when Apple forces customers to pay for more storage or to pay for anything Apple offers at all.

No they don't. They don't even have to make phones. There is no must.

If they can't afford to buy the parts to make a phone, then don't do it. If the price is too high, don't buy it. Make your own. Intel did. Now Apple has another source. If Qualcomm's price is too high, Apple shouldn't buy, and we should see how the market adjusts. You know why I don't make my own phone? cause I can't afford it. I'm not gonna go to court and force them to lower their price so I can.
[doublepost=1507124434][/doublepost]Basically, Qualcomm wants a percentage of profits. If Apple is making 100$ on one iPhone, Qualcomm will charge say 10$. If Apple is making 150$ per iPhone, Qualcomm wants 15$. This pricing structure is common. Apple wants a "flat tax." Qualcomm wants their piece if Apple is profiting using their tech.

If Apple wants to cry about this pricing model, buy from someone else (which they are doing). now they're crying to the courts saying this pricing structure is unfair. John Adams would roll over in his grave if he heard this.

""This introduction of a quality second source in the modem supply chain was met with another point by Apple: a smartphone modem is simply one of many components that make up an iPhone -- and of "no special significance" as modern consumers rely less on the actual cellular features of the device. These two points encouraged Apple's decision to fight back against Qualcomm"

Well that attitude explains why my last few iPhones suck in terms of call quality compared to my Android phones. It's known they gimped features on their Qualcomm models to make it even to the sucktastic Intel modems that so many of my friends have had even worse issues with.

Note to Tim, it's still a phone. People need to make cellular calls on it, too. Stop trying to squeeze every nickel until it bleeds and give us a good product with components that work well. We see your executives are paid and compensated more than most entire families will need over a lifetime. Quit these stupid games. Huawei is breathing down your necks.

There is an also. They are two separate amounts charged to Apple... One for the modem, one for the license. Unless I'm misunderstanding, Apple is using their IP by using the modem they purchased from Qualcomm in their phones.

Yes sir, you are working under a very common misunderstanding. Silicon != software.

I think the fact that Qualcomm not only creates and sells IP, but also makes and sells chips that use that IP, is what confuses people. They're not the same product.

No modem chip... no matter who makes it, even Qualcomm... comes with a full 3G or 4G license. (In fact, they can't - see below). In this way, their modem chips fairly compete on chip price alone with other chip makers.

Instead, Qualcomm charges phone makers separately for their 2G/3G/4G IP that runs on the chips.

AND SO DOES EVERY OTHER 2G/3G/4G PATENT HOLDER, EVEN THOSE WHO DO NOT MAKE CHIPS.

Remember, phone makers are not just paying Qualcomm for the IP to be able to use a modem chip. They're also paying Nokia, Sony-Ericsson, Motorola, LG, Samsung and many others... all of whom list default royalties charged by percentage of phone price.

THAT IS WHY THE IP IS CHARGED SEPARATELY FROM THE PURE SILICON CHIP COST.

With some exceptions, chip and IP payments are not normally related for cellular. Just as buying a CPU does not come with an iOS or Windows license. That IP is negotiated separately.

Qualcomm could stop making chips tomorrow and their IP royalty would stay the same... just as it did before they happened to also make chips.